BD grapples with mounting economic crisis
BANGLADESH economy had been growing at the fastest pace for the last one decade. This country earned tremendous applaud for being out of any economic barrier like that of Sri Lanka and Pakistan.
Everything was smoothly moving in the right direction. Unemployment rate was slightly up to 5.23%. Even in per capita income it had surpassed India.
Then what happened which caused economic crisis in Bangladesh and slowed down its rapid progress all at once is the scenario to be pondered over?
According to leading economists, there are many factors behind this emerging economic meltdown; however, the most contributing is the abrupt increase in fuel prices that is up to 52% which viciously impacted industrial sector.
It actually started with Covid-19 and Russia-Ukraine war which badly affected global supply lines causing food and fuel prices hike in the country.
lt further led to dwindling the foreign exchange reserves and lengthy power outages in the country.
During this global economic turndown and rising inflation, Bangladesh could also not escape the repercussions.
It is the third country in South Asia after Sri Lanka and Pakistan which is bearing the brunt of economic woes.
However, the scale of economic crisis in Bangladesh is not as severe as in Sri Lanka. It is evident that country’s 93% power production is based on thermal sources.
About 63% electricity is generated from natural gas alone while 10% comes from diesel, 5% is from coal, 3% of heavy oil and 3.3% is from renewable resources.
Currently, Bangladesh’s more than 80% economy is based on garment Industry. It is second in row to export garments across the world after China.
This heavy industry for its working consumes electricity solely produced from oil and gas. The actual fault lines lie here behind this emerging economic turmoil that after disruption in global supply chain of oil and gas due to the Russia-Ukraine war, fuel prices abruptly jumped by more than 50% across the globe.
This is what caused Bangladesh import less fuel and gas than actually needed for power and energy generation.
Secondly, Bangladesh could not afford to pay double times more for oil importation which eventually hampered and lowered power generation.
The breakdown in power supply to garment industry ultimately caused it to halt is operations countrywide impacting its economy severely.
Bangladesh’s economic over-dependence on garment industry made this country face this worse financial crisis.
Had they diversified their economy in different industrial sectors, they would have not come to this extent bearing this fallout.
Therefore, it is always suggested that, “Don’t put all your eggs in one basket”. In order to avoid any contingent risk and here Bangladesh is paying the cost of focusing more on one unit while ignoring all other options.
However, economic experts opine that only Covid-19 and Russia-Ukraine war alone can not be held accountable to this spiking financial crisis in Bangladesh.
They say, there are myriads of other factors which led to this economic fallout.
For instance, the high cost of infrastructure projects impeded upwards economic growth like Padma Bridge, one of the largest projects in the country, cost about $3.6 billion, which was previously estimated to be 1.16 billion in 2007.
A Rooppur Nuclear Power Plant costing Bangladesh $12.65 billion; however, the actual amount for this project will still be unknown until it becomes fully operational.
Similarly, Dhaka City Metro Rail Project reached $3.3 billion while the genuine estimates were of $2.1 billion only.
Another factor behind this crisis is the crashing of banking sector due to boundless default of loans.
The central bank claimed that total amount of defaulted loans was $11.11 billion which was contradicted by IMF saying the actual amount is even more than double. Likewise, the corruption in power sector has full hands in triggering this economic crisis.
In a period between 2010-2021, Power Development Board received $7.1 billion, while Bangladesh Petroleum Corporation received $3 billions between 2010-2015. Regrettably, these gigantic amounts were not fully spent on power generation.
Similarly, capital flight from the country also caused this crisis. According to Global Finance Integrity Report, in a period between 2009 and 2018, an ample amount of $8.27 billion was illegally laundered to Swiss Banks annually by mis-invoicing the values of import and exports.
In 2022, it has been increased by 55. 1% reaching 871 million. As per the views of economists, Bangladeshi Taka has effectively slid against the US dollar by approximately 20% in just past three months.
Moreover, due to Russia-Ukraine war, imports jumped to 39% and exports could hardly grow 34% during the fiscal year ended on June 30.
Currently, numerous austerity measures are being taken in order to alleviate economic woes.
The Cabinet Secretary Khandker Anwarul Islam said, in Bangladesh most Schools are closed on Fridays but now will also close on Saturdays to reduce electricity usage amid concerns over rising fuel prices.
Government offices will cut their workdays to seven hours from eight hours but private offices will be allowed to set their own schedules.
Tens of thousands of mosques around the country have been asked to curtail their use of air conditioners to ease pressure on the electricity grid.
In addition to electricity rationing, diesel power plants across the country accounting for 1500 megawatts of generation capacity have been taken off the grid.
In order to overcome the lengthiest blackouts in the country, government is struggling to source enough diesel and gas to meet the demand.
As per reports, the government is planning to hold negotiations with Russia for oil deals in order to mitigate energy crisis.
Country’s leading newspaper, The Daily Star has reported that Bangladesh has sought a bailout package of $4.5 billion from the International Monetary Fund in order to cope with mounting pressure on its economy.
Funds will specifically be used for balance of payment and budgetary needs to bolster its big garment-exporting industry, said Finance Minister A H M Mustafa Kamal.
To encapsulate, if deal is struck between IMF and Bangladesh as IMF says it is ready to support Bangladesh after loan request, Bangladesh will certainly be in a secure position to escape this impending economic crisis to not to meet the fate what Sri Lanka met.
Furthermore, Bangladesh needs to revisit its economic policies according to the changing global trends and should focus on diversification of its economy in order to repel such mishaps.
—The writer is a contributing columnist from Gujranwala.